The FRC has today begun consultation on the content, operation and oversight of a stewardship code that will set out good practice for institutional investors when engaging with the UK listed companies in which they invest.

The FRC agreed to take on responsibility of oversight of the proposed code at the request of the Government, following Sir David Walker’s report on the corporate governance of banks and other financial institutions in November 2009.

Announcing the consultation Sir Christopher Hogg, Chairman of the FRC, said:

“The benefits of a code which can help to bring about more effective engagement between companies and shareholders are potentially significant. They should lead to sustainable and enduring improvements in the governance and performance of UK listed companies and greater clarity in the respective responsibilities of asset managers and asset owners, which will assist the ultimate owners to hold to account those acting on their behalf.

“To deliver those benefits the code must set standards of stewardship to which mainstream institutional investors should aspire, and maintain the credibility and quality of these standards. It must foster a proper sense of ownership amongst institutional investors in the interests of their clients, and its success should be based on more effective communication between shareholders and the boards of the companies in which they invest.”
 

The FRC is seeking views on:

• Whether the code published by the Institutional Shareholders’ Committee in November 2009 provides a suitable basis for the Stewardship Code, in either its existing or an amended form;
• What the responsibilities for engagement of institutional shareholders and their agents are to the beneficial owners whose money they manage;
• How adoption of the standards in the code by UK and foreign investors can be encouraged;
• What information investors should disclose on their engagement policy and practice; and
• What arrangements should be put in place to monitor how the code is applied.

Consultation ends on 16 April 2010 and the outcome of the consultation will be announced in May or June.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate governance, including through excellent corporate reporting.
2. In his report on the corporate governance of banks and other financial institutions, published in November 2009, Sir David Walker recommended that the FRC’s remit should be extended to cover the development and encouragement of adherence to principles of best practice in stewardship by institutional investors and fund managers. At the request of the Department of Business, Innovation and Skills the FRC has agreed to take responsibility for overseeing a Stewardship Code, subject to consultation designed to ensure that it can operate effectively.
3. Sir David Walker also recommended that the Financial Services Authority (FSA) should require authorised asset managers to disclose on their website whether and, if so, how they commit to the Stewardship Code, on a “comply or explain” basis. In its statement on the Walker report published on 26 November 2009, the FSA said that it would consult on such a requirement on the conclusion of the FRC’s consultation.
4. The Institutional Shareholders’ Committee is a forum of UK trade associations formed to allow the UK institutional shareholding community to exchange views and, on occasion, co-ordinate their activities in support of the interests of UK investors. The Committee’s Code on the Responsibilities of Institutional Investors was published in November 2009. Copies are available at:
   http://www.institutionalshareholderscommittee.org.uk/library.html.
5. Responses to the consultation on the Stewardship Code are requested by 16 April 2010 and should be sent to stewardshipcode@frc.org.uk. Media enquiries should be directed to Susannah Haan, telephone 020 7492 2379, email as above.